MasterCard Launches Own Mobile Wallet

MasterCard is launching its own digital wallet service, initially focusing on services for online shopping on websites, but ultimately as a mobile wallet as well. It would be tempting to say either that MasterCard has lost confidence in its partnership with Google Wallet, or that MasterCard needs to ensure it can match the rival V.e mobile wallet effort.


The latter is more likely correct than the former. At the moment, both Visa and MasterCard are pursuing multiple parallel efforts, in large part because nobody can be entirely sure which approaches will win in the market. Neither MasterCard nor Visa want to be caught unawares, so it just makes sense to invest in a number of rival approaches.


In addition to V.me and "PayPass" by MasterCard, Isis and other consortia of European mobile service providers also are launching their own mobile wallets. Google Wallet and PayPal also are committed to their own branded wallets as well. 


PayPass Wallet Services, a suite of software products for use by merchants, card-issuing banks and their customers will be used initially by AMR Corp.'s American Airlines and Barnes & Noble on their respective websites. American Airlines will also integrate the technology into its mobile application.

Evolution of the "Screen"

The functions embedded into "screens" have changed dramatically over the last three decades. In the past, the TV was a moderately dumb device, while the component TV monitor intentionally was a dumb device. 


With the introduction of smart phones, iPods, game players, tablets and notebooks, most screens are part of  "intellligent" devices that make quite a few specific assumptions about the networks and types of software those devices will be interworking with and supporting. 


With the exception of the desktop PC monitor, virtually all other screens intentionally assume roles as "intelligent" devices, with specific networks and application environments in mind. 


These days most TVs remain moderately intelligent screens that still require some third party devices to add more functionality. For cable, satellite and telco TV, that device is the set-top decoder. In other cases it is the game console or an "Apple TV" box that provides the additional functionality. 


The big issue now is how fast, and how far, the third party functionality can be built into the standard TV. Up to this point, it has proven quite difficult to do so, and that likely will not change, even as rumored Apple TVs and Google TVs are created for the mass market. 


The point is that many of the advanced features still require highly network-specific software loads that cannot all be supported in a basic TV display. 


That is important because advanced features that can be "built in" to a smart phone or tablet will be more difficult in a TV monitor. 


Each smart phone is built with detailed knowledge of the networks it must interoperate with. 


Many third party devices, such as game consoles, simply cannot make those assumptions and must be insulated from network details, with the exception of simple network interfaces, such as Wi-Fi and Internet. 


The big question for any new suppliers that want to change the experience of TV viewing is to determine which important new features can be embedded, at what cost. In most cases, a relatively "dumb" approach still will make sense for general purpose screens that are expected to work with "all" game consoles, service provider decoders, VCRs, DVD players and video recorder devices. 


Though service providers long have wanted an ability to offload the decoder functions to the TV, that has proven impractical. In most cases, especially when software continues to evolve rapidly, it will make sense to provide standard network interfaces to popular third party devices, Internet and Wi-Fi connections, while restricting on-board applications and features that typically are provided by a third party device. 


Many would argue TVs always will have to be relatively dumb displays, compared to other screens, because those other screens are designed to be used primarily within one platform, or on one network. But nobody wants to get a new TV every time they change video service providers, game consoles or other devices that normally get attached to TVs. 

Smart Phones A Majority of Phones in Use for First Time

It's an important milestone: In March 2012, a majority (50.4 percent) of U.S. mobile subscribers owned smart phones, up from 47.8 percent in December 2011. Smart phones have been outselling feature phones for some time, but this appears to be the first time the installed base has featured a majority of smart phone users. 


In the first quarter of 2012, for example, smart phones represented 66 percent of all handset sales, according to NPD. 


Consumers purchasing new phones picked smart phones more often, and among smart phone owners Apple was the top manufacturer of smart phone handsets, while Android was the top smart phone OS, says Nielsen.


In an interesting note, the Nielsen data also shows the importance of smart phones for minority populations, all of whom use smart phones at higher rates than "white" Americans. The reason that is significant is that it is possible mobile broadband is a "more important" method of access for some groups, compared to others. Discussions of "broadband gaps" have to take that into account. 


The point is that "differences" in consumer choice are not necessarily indicative of "supply gaps." 

Why Most Mobile Innovations Fail, and Will Fail

Amazon probably has quite-different reasons for embracing tablets than many magazine and newspaper publishers do, and the reasons illustrate the difficulty of adapting offline business models to mobile modes.

One rule of thumb used by venture capital investors when assessing technology firms is to look for an order of magnitude better user experience. That rule sometimes is expressed as an order of magnitude better technology performance.

Using that measuring stick, one might argue that, whatever the initial expectations, magazine and newspaper experiences with mobile apps for smart phones and tablets have delivered “end user experience” that is problematic, compared to Amazon’s experience with books.

At the same time, from a provider perspective, mobile apps that were expected to recast newspaper and magazine readership and revenue have proven more complicated than offline publishing, have cost more than expected and provide less profit than expected.

Amazon, on the other hand, arguably has focused on selling digital content with characteristics that are more congruent with the offline end user experience, at costs more controllable and predictable.

While one might argue that tablet and smart phone content availability is not an order of magnitude more valuable to end users than offline versions of those products, one might well argue that the digital versions of songs, videos and books that Amazon sells provide more value than the digital subscriptions magazines and newspapers have tried to sell.

Also, in terms of the “native app versus Web” delivery formats, some content products are better suited, or equally well suited, to Web distribution, compared to app distribution.

Some of the same fundamental questions must be asked of other new mobile businesses that take offline processes, such as shopping, paying and banking, and attempt to create new mobile versions of those products.

Mass adoption will hinge on whether end users perceive dramatically-better experiences, whether we can quantify how much better those experiences are. The notion of “dramatically better” is akin to “order of magnitude” change that can induce massive end user behavior change, while the “incrementally better” notion, with incremental new hassle, is not likely to lead to behavior change.

Looking only at magazine and newspaper apps, there are issues that illustrate the hurdles. Apple’s 30-percent slice of gross revenue is a problem for suppliers, since that is higher than the typical profit margin for a newspaper or magazine publisher. Irrespective of end user experience, it arguably is a “profitless” exercise to sell a digital magazine or newspaper subscription when the revenue split gives a distributor 30 percent of gross revenue.

Among other complications, though, were how publishers could comply with their normal auditing standards used for offline publications, Technology Review notes.

Nor, oddly enough, did mobile apps represent a particularly easy publishing format. Tablets, and some smart phones, support both a "portrait" (vertical) and "landscape" (horizontal) view, depending on how the user held the device.

Then, too, the screens of smart phones were much smaller than those of tablets.

So many publishers ended up producing six different versions of their editorial product: a print publication, a conventional digital replica for Web browsers and proprietary software, a digital replica for landscape viewing on tablets, something that was not quite a digital replica for portrait viewing on tablets, a kind of hack for smart phones, and ordinary HTML pages for their websites.

Not surprisingly, app development costs were unexpected.

But the real problem, some might argue, is that end users expect an online “link rich” experience when using an app for content consumption, much as they expect with Web-based content consumption.

That conflicts with the walled garden that a newspaper or magazine represents. In one sense, a magazine or newspaper is like a compact disc, a collection of items, whereas people increasingly expect to consume items one at a time, in random fashion.

Fundamentally, people consuming in an online channel are looking for songs, not albums. They are looking for stories, not collections.

The point is that transitioning from offline products to mobile products sometimes is not just a matter of authoring, design and software development. Sometimes the product has to be different when it is a mobile-consumed product, not an offline product.

There are many analogies. A mobile payment capability, for example, has to offer an experience that is qualitatively and significantly better than paying with cash or a credit card. It can’t be a little better. It has to be a lot better. And that means it cannot be new experience that is just seconds faster.

There has to be something about the experience that is much better. Maybe a user won’t be able to quantify the changes so easily. But they have to sense that the “new thing” is really lots better than the “old thing.” Slight little improvements won’t motivate change.

You might argue that Square, and other merchant point of sale services offered by Intuit and PayPal have gotten such big traction because they were those sorts of “vastly better” experiences, allowing small retailers to take credit card and debit card payments where they never could do so before.

Something like that will happen for every successful mobile app and use case, period. But most apps and experiences do not represent that sort of clear advantage for end users. Tablets and smart phones, on the other hand, clearly have succeeded in offering user experience and value much better than users had before.

Without such value, new revenue models and businesses will not succeed in the mobile realm.

Tablets are "Entertainment" Devices With a High "Status" Value

Tablets primarily are used for entertainment and are a status symbol, not devices used for "work" and productivity, Alcatel-Lucent says. 


Though becoming a standard feature of "work" environments, tablets are used primarily for game play, content activities such as reading and  viewing streaming and stored videos, Alcatel-Lucent says.

Key benefits are screen quality, flexible connectivity, battery life and slim form factor, all of which contribute to the device’s ease of use and portability. The study also suggests that use of various computing devices varies with screen size. The smart phone is the universal screen, while tablets are used in lean back environments. 


Smart phones are the primary mobility devices, and tablets substitute for laptops when the primary goal is relaxation or entertainment.


Tablets are "rarely" used for productive work because they lack keyboards and mice for efficient and effective data input and control of the device, the study suggests. 

Most tablet users do not use productivity suites (such as Microsoft Office) on their tablets, for example. 


Also, respondents in Spain and the United States own tablets as a badge of social status. Some might not think such rationales are key drivers of behavior, but one only has to look back a decade or so, when use of a BlackBerry device similarly was seen as a sign of status or importance in enterprise settings. 


The "pain of adoption" (cost) in this case is overwhelmed to a great extent by the value of the status. As equity analyst Pip Coburn has noted, all technology products achieve adoption only when the pain of the status quo is greater than that pain of adoption. And "pain" can be a matter of social status or inclusion. 


Mass adoption of any new technology becomes irresistible when "all my friends have an X." 


Arguments about tablet productivity are to be expected in business settings. Users will not be able to justify buying them, otherwise. 


But it is safe to say many of those arguments are spurious. 

U.S. Mobile Providers Face Spectrum Uncertainty

U.S. wireless operators and equity analysts have argued for well over a decade that there is "too much competition" in the U.S. mobile market. The notion is that a stable national market would have no more than three providers. 


Also, with the emergence of the smart phone business, all mobile service providers need lots more spectrum, though some would contest the notion in a near-term sense. 


But some also note that, at least for the moment, contestants are stymied, in large part because recent deals that would have changed spectrum allocations, and some deals still pending, signal to most contestants the likely regulatory resistance.


Recent regulatory action includes the successful regulator resistance to the AT&T purchase of T-Mobile USA, and scrutiny of the spectrum sales by Comcast, Time Warner Telecom, Cox Communications and Bright House Networks to Verizon. 


The denial of LightSquared to use satellite spectrum for a terrestrial Long Term Evolution network is a separate case, many would argue, as the issue there was not market structure (indeed, one might have argued LightSquared would increase the level of competition in the U.S. market), but signal interference with other licensed users. 


Is the share of market now characteristic of the U.S. market sustainable? Most would say "no." Among the common observations is that two of the top four national providers have market share two to three times greater than two of the others.

Many observers would say a market with four national providers is about one too many for a sustainable and stable market. Significantly, that view is held by the Federal Communications Commission and Department of Justice, both of which use a standard test of market concentration in deeming the U.S. mobile market already

 

non-competitive. 

One of the ways to measure market concentration is the Heffindahl-Hirshman Index or HHI, often used as a measure of market concentration. The HHI is the square of the percentage market share of each firm summed over the largest 50 firms in a market. 

The  HHI which already suggests that the market is uncompetitive. HHI is the problem where it comes to further mergers among the four largest national mobile providers, even a merger of Sprint and T-Mobile USA, which despite its complexity would create three national providers with roughly equivalent market share. 

Market share concerns also will permeate any spectrum acquisitions, as well, since spectrum is a key "raw material" from which any mobile service provider can build a business. 

Over the long term, there is perhaps general agreement that more spectrum will be required. At issue is the way such spectrum is allocated. In the past, many regulators, in many countries, have restricted availability of new spectrum by incumbents, hoping thereby to create more competition. 

Over the long term, one has to question whether this actually ever works, as all markets, over time, consolidate, even when the initial implications would appear to be positive, from an "enabling of competition" perspective. 

 

Cloud Winners and Losers Will Cross Ecosystems

Who wins, and who loses, as mobile apps and services, especially cloud-based apps and services, gain more traction? The “obvious” answer is that device and app providers are “winning,” while service providers “lose.” Though obviously true in the case of over-the-top voice, messaging, videoconferencing and entertainment video realms, the larger reality is more complicated.

In many cases substantial and real competition now is occurring between firms in different ecosystems, not only within single ecosystems. And, as has been the case for a couple of decades, contestants have to balance effort between protecting existing businesses and growing new lines of business. 


The difference now is that many of the new revenue streams and businesses actually cross ecosystems and redefine them.
For example, mobile payment systems offered by Square, Intuit and PayPal arguably represent incremental revenue within the credit card and debit card transaction business, rather than primarily a shift of transaction volume within the business. The reason is that such services are used primarily by businesses that would not have used merchant point of sale systems in the past.

Likewise, to some extent, services that turn smart phones and tablets into merchant point of sale systems will compete with supplier of traditional merchant terminals, as well.

Enterprise cloud services might compete with packaged software suppliers, data centers or server manufacturers, for example. That would mean some amount of competition between segments of one industry.

Small business cloud services might reduce the amount of revenue earned by value-added resellers or system integrators, for example. That also is a form of intra-ecosystem competition.

Consumer cloud services, especially those related to storage, will displace some of the need for local storage, and could reduce demand for external hard drive storage and some amount of PC sales. That might be more an example of competition between ecosystems

Cloud storage might reduce need for PCs and storage devices, for example, reducing some amount of device spending and shifting that spending into software and services. So some device manufacturers might lose, while others might gain (PCs, external storage lose; mobile devices win).

By the end of 2013, consumer cloud services for accessing content will be integrated into 90 percent of all connected consumer devices, according to Gartner.

The other dynamic is that, in the case of brand-new services, such as cloud storage, there could also be winners within and between ecosystems. App providers could win, as well as hosting facilities.

Traditional entertainment video suppliers such as cable companies hope to win, even as some amount of entertainment video shifts to cloud mechanisms, even as rivals think cloud delivery will eventually displace traditional distribution mechanisms.

Likewise, cloud services could help device manufacturers as much as app providers. Certain handsets and environments, such as iOS iTunes and Apple tablets and phones, or Google Drive and Android-based devices, provide early examples. That might be an example of value and revenue shifts within the mobile ecosystem.

In other cases, such as many parts of the mobile commerce business, competition might entail substantial amounts of competition between ecosystems. Services offered by the likes of Square, Intuit and PayPal that turn a smart phone into a merchant point of service terminal represent competition between those firms and other existing payment systems, merchant POS terminal providers and emerging application provider or mobile communications service provider payment systems.

“Inside the spending envelope, market dynamics will collapse some markets while creating others that expand the captured revenue,” says Gartner managing vice president Andrew Johnson.

Providers of consumer devices, services and content must anticipate the risk of sweeping changes to their business models,” said Johnson. “The personal cloud will force technology providers not only to rethink how they approach markets, but also, more importantly, how they define markets.”

Emerging and mature markets are no longer useful form of market segmentation, Johnson argues.